Monday, August 31, 2009

In a phenomenal demonstration of frankness and true economic assessment, the head of the China Investment Council, Lou Jiwei, who controls China's $298 billion sovereign wealth fund, admits the ponzi nature of today's markets:

Both China and America are addressing bubbles by creating more bubbles and we're just taking advantage of that. So we can't lose.

Indeed, they can't lose thanks to the criminal silence on behalf of Mr. Jiwei's US financial counterparties. It doesn't get any simpler than that folks. Keep in mind Madoff was thrown in jail for a few hundred years for much less: what's $55 billion when you are dealing with a $20 trillion+ global equity market Ponzi scheme. And yet both China and the US continue their struggle to perpetuate a Ponzi, with the full implicit backing of all financial, regulatory and legal authorities. The system is now officially broken, even ignoring the conspiratorial ramblings of fringe bloggers.

And as for who, aside from TradeBot and HAL9000 are speculating in equity markets, look no further than China, which is dead set on exporting its tulip mania to US stock markets:

I have always been a fundamentals-oriented investor. My reluctance to embrace “technical analysis” is based upon my extensive background in mathematics and statistics – and an awareness of all the unstated assumptions upon which almost all technical analysis is based.

Two of those (many) assumptions are “perfect information” and “free and open markets”. Even a brief look at these premises reveals they are utterly inapplicable to U.S. markets. Not only do U.S. markets lack “perfect information” (something which isn't truly present in any market), but in many cases investors are denied even “imperfect information”.

It is certainly no secret that U.S. markets are dominated by financial-sector companies (in more ways than one). To begin with, the balance sheets of these companies are saturated with the leveraged bets which these companies have placed in their own, private casino: the derivatives market.

With all the privacy concerns (and antitrust questions) surrounding the Google Book Search settlement, I was slightly surprised to see Viviane Reding, the EU commissioner for Information Society and Media, back the Google Books deal.

In case you have been hiding under a rock, or just not reading the coverage on eWEEK, Google Watch and other high-tech news sites, Google Book Search is the search giant's effort to scan the world's books online and let users access them for fees.

Today’s “legacy assets” are toxic derivatives; a decade ago it was gold reserves. Both are proving hard to shrug off, but for very different reasons. Both legacies also come thanks to previous central-bank history; the fossils remain only too livid today.

And 10 years from now, if not sooner, just how welcome will the current central bank must-have become – freshly printed government debt, bought with money that doesn’t exist until the central bank wills it?

Sunday, August 30, 2009

Security forces have been placed on high alert after an intelligence report warned of an alleged plot by disgruntled South African soldiers to abduct top military officials, including minister of defence Lindiwe Sisulu.

The acting chief of the South African National Defence Force, Lieutenant-General Themba Matanzima, told the Sunday Times this week that several soldiers were under investigation and some faced charges of mutiny. They face dismissal if convicted.

The alleged plot was first revealed in an affidavit by Matanzima, filed in the High Court in Pretoria on Tuesday, that Military Intelligence had exposed a plan to kidnap senior military officials at a function at a military base earlier this month.

The affidavit formed part of this week’s court battle between the SANDF and the military’s biggest union, the South African National Defence Union (SANDU), over a planned march on the Union Buildings by soldiers on Wednesday.

In the eight-page affidavit Matanzima states that the country is living in “treacherous times”, adding that on August 5 Sisulu had been scheduled to open a hospice at Lenz military base, south of Johannesburg.

Antilabor forces say it's welfare for the UAW and Democrats' union allies. Labor supporters say it falls short of what's needed as tens of thousands of union members are pushed into early retirement as employers cut back health care coverage.

They're both talking about a $10-billion provision tucked deep inside thousands of pages of health care overhaul bills that could help the UAW's retiree health-care plan and other union-backed plans.

It would see the government -- at least temporarily -- pay 80 cents on the dollar to corporate and union insurance plans for claims between $15,000 and $90,000 for retirees age 55 to 64.

This is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded.

In this the third part of this series we look at the fall of gold as a medium of exchange and the freeing up of gold ownership from August 15th 1974 onwards.

We previously stated that gold ownership was made illegal on 1st May 1933. What we did not tell you and we correct now, was that U.S. citizens, under Order 6102, were to own up to $100 in gold coin [±5 ounces]. Today that would be worth under $5,000 a mere token gesture to real gold owners. It acted as a tiny 'escape valve' to the general body of citizens and did not detract from the fact that effective gold ownership was abolished. So that we fully understand the attitude of governments to gold [which remains real money in times of crisis] we add this paragraph: -

Congress could easily revoke the privilege again. In fact, at no time during this century has the U.S. government recognized the right of private gold ownership. The Trading with the Enemy Act, which President Roosevelt invoked in 1933 to restrict private gold transactions, remains law. Although private ownership of gold in the United States was legalized on August 15, 1974, the power to confiscate gold remains in the hands of the President. The President still retains the right, under the Emergency Banking Relief Act, to "investigate, regulate or prohibit... the importing, exporting, hoarding, melting or earmarking of gold" in times of a declared national emergency. It is highly unlikely that either the Courts or Congress would successfully argue that confiscatory powers are not implicit in the Emergency Banking Relief Act if a currency crisis or other fiscal emergency prompted the President to, once again, nationalize gold.

Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
"We propose that we would buy [the US bonds], but it's yen, not dollar." BBC NEWS | Business | Japan 'would avoid dollar bonds'

Google hasn't yet finished previewing its new Wave collaboration tool, let alone given consumers full-blown access to it. But on Wednesday, Lars Rasmussen--one of the principle engineers behind Wave--hinted at how Google might monetize the tool.

Google ( GOOG - news - people ) Wave is a collaboration and communication tool that allows users to work on the same content object, dubbed a "wave," which can house both text and multimedia. Users can reply to messages and edit together in real-time. Beyond those features, developers can extend Wave's features through a programmable interface.

Rasmussen stressed that Google is, at this point, focused on polishing and popularizing the product, rather than figuring out how to monetize it. Still, he gave in to a tough line of questioning from reporters and hinted at three possible ways Google could monetize Wave once the product is fully baked.

Indeed, federal officials warned that while the economy and financial markets were showing signs of improvement, the banking sector was unlikely to rebound soon.

“These credit problems will at least outlast the recession by a couple of quarters,” said Sheila C. Bair, the F.D.I.C. chairwoman. “Cleaning up balance sheets is a painful process that does take time, but it is absolutely necessary to the industry’s sustained profitability.”

Friday, August 28, 2009

EVER had the feeling something is missing? If so, you're in good company. Dmitri Mendeleev did in 1869 when he noticed four gaps in his periodic table. They turned out to be the undiscovered elements scandium, gallium, technetium and germanium. Paul Dirac did in 1929 when he looked deep into the quantum-mechanical equation he had formulated to describe the electron. Besides the electron, he saw something else that looked rather like it, but different. It was only in 1932, when the electron's antimatter sibling, the positron, was sighted in cosmic rays that such a thing was found to exist.

In 1971, Leon Chua had that feeling. A young electronics engineer with a penchant for mathematics at the University of California, Berkeley, he was fascinated by the fact that electronics had no rigorous mathematical foundation. So like any diligent scientist, he set about trying to derive one.

And he found something missing: a fourth basic circuit element besides the standard trio of resistor, capacitor and inductor. Chua dubbed it the "memristor". The only problem was that as far as Chua or anyone else could see, memristors did not actually exist.

The bloviators of the blogosphere have been in full roar the past few weeks over the claimed success of the economic stimulus program. Much of this was ignited by Christina Romer, chair of the President's Council of Economic Advisors, in a speech addressing the question of whether the stimulus was working--and concluding that it was, "absolutely."

Richard Posner blogged that Romer's speech was implausible and irresponsible (and also took the opportunity to trash macroeconomists who study business cycles). Posner, in turn, was subjected to a vitriolic barrage from some of the least pleasant voices in the blogosphere. That people should think before they hit the "post" button is a discussion for another forum.

Economists don't play well together. That is well-known. But this discussion has tipped over into the realm of the ridiculous. Most of it makes no logical sense and it doesn't appeal to the data that one could use to try to address it.

African ministers agreed this week to recommend that the African Union should demand US$67 billion per year from the global community in compensation for the effects of climate change.

The annual sum would be spent on establishing science-guided projects to help with adaptation and mitigation.

The figure was agreed at a meeting of the Conference of Africa Heads of States and Government on Climate Change in Addis Ababa (24 August). However, only deputy ministers attended the meeting, and it is hoped that the declaration will be endorsed by African heads of state next week in Tripoli, Libya.

More than one in four U.S. banks are unprofitable, a number fueled by rising numbers of bad loans, the FDIC announced Thursday.

The percent of banks losing money has quadrupled since 2005. The U.S. added 111 banks to its "Problem List" for a total of 416, a 15-year high (the FDIC doesn't publicly identify those banks). And the rate of loans that are at least 90 days late or are so late they're no longer accruing interest is the highest recorded in U.S. history.

A look inside the FDIC's numbers also sheds light on how U.S. consumers are managing the recession. The health of banks is not just a Wall Street problem, or one for federal bank regulators in Washington, D.C.

It's not a pretty picture. The amount of loans banks are charging off is rising (when banks charge off a loan it means they don't expect the borrower to repay). There have been more charge-offs on multifamily home loans (apartment buildings) so far this year than all of 2008.

And so the guns come out blazing. The Clearing House Association, another name for all the banks that were bailed out over the past year with the generous contributions from all of you, dear taxpayers, are now threatening with another instance of complete systemic collapse if Bloomberg's lawsuit is allowed to proceed unchallenged, let alone if any of the "Audit The Fed" measures are actually implemented.

As a reminder, The Clearing House Association consists of ABN Amro, Bank Of America, The Bank Of New York, Deutsche Bank, HSBC, JP Morgan Chase, US Bank and Wells Fargo.

In a declaration filed in the Bloomberg Case (08-CV-9595, Southern District of New York), the banks demonstrate no shame in attempting to perpetuate the status quo with regard to the Federal Reserve and demand that the wool over the eyes of the general population remain firmly planted in perpetuity.

Thursday, August 27, 2009

1) Japanese data released on Thursday showed that exports fell yet again in July. They are down 39.5pc to the US, and 26.5pc to China.

Japan is the world’s second biggest economy. It lives on exports. It is also a key part of the supply chain for the Chinese economy. How can this hard data be reconciled with the extreme V-shaped recovery already priced in by the markets?

By the way, Toyota is suspending a key production line at its Takaoka plant in central Japan. It is cutting global capacity by 1m vehicles.

2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday.

Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug from underneath the latest commodity bubble?

The warning is dire: U to 90,000 "possible" deaths from a potential swine flu outbreak.

But how did the president's science advisers, who came up with the number, reach that estimate?

It is based on complicated models of how such illnesses are transmitted, how they mutate, how prepared the healthcare system is, and what's known from the patterns of past flu epidemics, such as the ones in 1918, 1957, and 1968.

It even taps the so-called "virus detectives," a branch of the Centers for Disease Control and Prevention (CDC) that tracks, in the best Sherlock Holmes manner, the threats to America's health – often traveling to remote parts of the world to study outbreaks.

The problem with dire warnings, though, is that the complacency scientists are in part trying to break may be caused by the very studies they tout – the crying wolf syndrome. The avian bird flu predictions in 2005 included estimates of millions dead. Worldwide, 282 people died.

There is a whiff of euphoria in the housing market, a heavily touted confidence that "the bottom is in." It's all roaring back--rising sales, multiple bids by anxious buyers, 3.5% down payments, low mortgage rates and the bonus of an $8,000 first-time home buyer credit (a gift from U.S. taxpayers). Housing Lifts Recovery Hopes (Wall Street Journal)

Foreclosure-related sales account for over 30% of all sales nationally, and over 70% in hard-hit markets such as Las Vegas, but like piranhas feasting on a school of weakened fish, nobody in the real estate business mentions the huge losses of capital and equity which created all these "bargains."

Gmail has rolled out a new feature that should make it a bit easier to address email messages. Up until now, the easiest way to fill out the "to" field was to start typing names and select the appropriate contacts from a drop-down menu if and when they appeared. But digging deeper down into your address book was a bit trickier.

Now, all you have to do is hit the To: link next to the address field and a contact box will pop up. You can scroll through your complete address book and select all the names you want to address your email to. Or you can use the search box to navigate address books of mythic proportions.

Another quite intriguing piece by Chris Martenson "The Shell Game - How The Federal Reserve Is Monetizing Debt" reveals some of the intricacies of the Fed's monetization game and, by digging deeper into the Fed's Custody Account, demonstrates not just how the Federal Reserve is enabling foreigners to swap out of Agencies into Treasuries, but how it is implicitly monetizing a markedly larger portion of debt than is assumed.

For the full details of the article we eagerly refer readers to the original Martenson piece, but in a nutshell here are the components of what Martenson coins "The Fed's Shell Game":

POLICE fired rubber bullets and tear gas at rioting soldiers at the Union Buildings yesterday to break up an illegal protest described by the defence minister as a threat to national security.

Several police and military vehicles were damaged by a petrol bomb and other vehicles were vandalised as the all-day wage protest, organised by the SA National Defence Union, turned violent. Two soldiers were arrested and a policeman and several soldiers were injured.

The protest, part of a serious of marches organised by Sandu, had earlier been banned by a judge.

Minister of Defence Lindiwe Sisulu described the troops’ conduct as “disgraceful” and “unbecoming”, saying it had placed the nation in danger.

Just after 4pm the protest, spotted with flashes of violence, came to an end when hundreds of soldiers reluctantly heeded police warnings that more ‘‘necessary force’’ was imminent.

Wednesday, August 26, 2009

After the SEC attempted a truly staggering feat of legal contrivance by blaming the Merrill bonus fiasco on "understood" arrangements and placing all the blame on counsel, where the trail would end because Bank of America would never waive attorney-client privileges, Rakoff shot back and told the SEC, in no uncertain terms, to not take him or the legal system for Wall Street's marionettes, a role the SEC is more than happy to play day in and day out.

In this sense, Rakoff's response to the SEC is a masterpiece, which, assuming the Judge is not voluntarily or otherwise silenced, could force Rakoff to rake the SEC over the coals of public humiliation and finally acknowledging its crony lap dog status for a group of wealthy Wall Street insiders who consistently have special status with Mary Schapiro and her henchmen.

Tuesday, August 25, 2009

By now, almost everyone is familiar with the concept of “peak oil”. This notion, which has been accepted as fact by many, has two components to it.

First of all, we have new supply fundamentals which demonstrate conclusively that any increases in supply cannot be maintained due to the permanent inability of the petroleum industry to find and develop new sources for crude as fast as current reserves are depleted.

The second component of the “peak oil” model is a demand “curve” which projects large increases in demand which are totally above the upper parameters of supply. In other words, barring some currently unforeseeable miracle, we will be forced (through dramatically rising prices) to curb our demand – or else we will “fuel” (pardon the pun) even more extreme prices.

More recently, some “gold bugs” have been quietly discussing their own paradigm for the future: “peak gold”. The first component of this model already equates to the current realities of the oil market: global gold producers are unable to increase supply – despite a greater than tripling of the price of gold this decade

The other day I got a call from an unknown Los Angeles-area phone number. I don't normally answer calls from unknown numbers, so I let it go to voicemail. The caller didn't leave a message, but shortly after I got a text from the same number that read: "Hey babe, it's me. Save this number; it's my new Google Voice number." My boyfriend had just been granted his invite to Google Voice, the enhanced voice and data messaging application from Google that provides number management and communication services to users with numerous phone numbers. He had been patiently waiting after submitting his request for an invite just two days earlier. After a few quick steps, he was up and calling using his new number.

Personally, I had no interest in signing up for the free service because I only have one phone, but I immediately thought how great it would be for all the business owners out there who have to juggle various phones and numbers (home, office, mobile, etc.). So I decided to do some research and interrogate my Voice-user boyfriend, who has both a land line at home and a mobile phone.

It's official. Today, the Los Angeles County Coroner's Office reported that Michael Jackson died of an overdose of propofol, an anesthetic most often used during major surgery. Why he was using this drug at home is still unanswered, though reports indicate that the pop superstar hadn't properly slept for years, maybe even decades. Is it possible that Jackson's quest for shuteye may have ended his life? The same questions surround Heath Ledger, who died last year of a prescription-drug overdose. At one point, the young actor told The New York Times he was only getting two hours a night. Director Terry Gilliam told Vanity Fair that Ledger was overusing prescription sleep aids in search of rest. "It was a combination of exhaustion, sleeping medication … and perhaps the aftereffects of the flu," said the director, speculating about Ledger's death. "I guess his body just stopped breathing."

The Brits are in a mess: They have freed the Lockerbie bomber for reasons that nobody truly, or reasonably, believes. And yet, maybe they know what they’re doing.

True, something always seems terribly off about Gordon Brown’s government. It is not just that so much of what they do has been incompetent, but that it looks squirrelly, shame-faced, and defensive. They’re not just sneaks, but they keep getting caught.

Monday, August 24, 2009

The bankruptcy of Colonial Bank (CNB) was the largest bank-bankruptcy in the U.S. since several large, U.S. financial institutions collapsed last year – with the most recent being Washington Mutual, last fall. However, there is one huge difference between the mega-bankruptcies of last year and the collapse of Colonial Bank a week ago.

During the large bank-failures of 2008, the acquiring institutions wrote-down the “assets” on the books of these banks by an average of 18% - according to a Bloomberg article. However, when BB&T Corp purchased Colonial, it immediately wrote-down Colonial's assets by 37%, double the amount of discounting done last year.

What has changed between now and then? The legitimizing of fraudulent accounting, when the supposed “watch-dog” of U.S. accounting, the Financial Accountability Standards Board brought in new “mark-to-fantasy” accounting rules in the U.S. this spring ( see “FASB strong-armed into mark-to-fantasy accounting”).

One of Goldman Sachs' business is in issuing analysts reports. These reports often move the stock market. Unfortunately, many people take these reports at face value. Chumps buy-and-sell based on publicly-released reports.

Sunday, August 23, 2009

Once upon a time people worked and earned money. They paid their living expenses and maybe indulged themselves a little. Then they put a little something aside to save for that car or home, that small business, or to prepare for a rainy day. You weren’t rolling in dough, but anytime the going got rough you took comfort in your savings and through this lens you could see a future and feel at ease knowing you had something to fall back on in case of emergency. Saving may have been challenging but watching the balance grow was rewarding. Today, the image of working to earn an income is similar but that’s where the similarity ends. Now, ones income is used to pay the principal and interest on their debts and they borrow and rely on employment and/or government benefits for everything else. Savings has gone the way of the dinosaur. Of course this isn’t true for everyone. There are some who avoid debt completely or manage to keep it very low relative to their income. But it is true for many…maybe most.

The first scenario forces you to manage your budget within the limits of your income. Your financial security and your plans for the future are directly related to your ability to save. The second scenario allows you to live beyond the limits of your income, at least for awhile. This continues up until you reach your credit limits or your income can no longer support your debt payments or your lenders simply stop lending, whichever comes first. Saving is not so critical in this picture as mortgages, lines of credit, credit cards, car loans and leases, small business loans, school loans, insurance financing and other types of credit are there to finance just about everything. Add to this your employer and the government who stand ready to provide certain types of social, medical and tax benefits to cushion against emergencies and keep you borrowing and spending. The availability of easy credit, employment benefits, government social programs, tax benefits for borrowing and spending along with low interest rates makes saving an unattractive option.